SEC needs to regain lost credibility

Whatever the outcome of the insider dealing investigation at the Securities and Exchange Commission turns out to be, a number of issues highlighted by the fiasco needs to be addressed and sorted out if the watchdog body is to regain its lost credibility and investors are to regain confidence in the regulators ability to protect their interests.

It is the investing public that it being asked to take the risk of putting their hard-earned money into the stock market from which listed companies can access relatively cheap funds. It is only natural that they follow this whole affair with keen interest and become wary of the market if regulators are not allowed to do an independent job in taking action against those breaking the law.

The decision of the Attorney General on the second opinion given by a so-called independent team on the SEC investigation and the AG Department's original advice that there was a prima facie case against the accused was being awaited at the time this comment was being written.

One of the fundamental concerns that have arisen from this fiasco is the manner in which the normal procedure or practice at the SEC has been violated. Many questions are being raised about the violation of the usual process adopted in such investigations. In the past the SEC has prosecuted or compounded offences against market players accused of breaking the law, based on the AGs advice subsequent to its investigations. In this probe the SEC's own chairman, and other ex-directors of Aitken Spence accused of the same crime, were given the privilege of a second opinion and allowed to present their case to the state's legal advisor, a privilege not granted to other accused in previous inquiries. The SEC Commissioners owe an explanation to the investing public why this was done.

The legality of one of the Commissioners, Nihal Jinasena, acting as the chairman, following the leave of absence taken by Michael Mack, is also in question. After all, Finance Minister K.N. Choksy has not formally appointed him the acting chairman as he is required to do under the SEC Act. Why was this not done?

Then there is the secretive manner in which decisions regarding the investigation were taken, such as the appointment of the two-member panel that gave the so-called independent opinion on the AG's advice.

There is also the potential conflict of interest concerning those Commissioners who are, or were, serving in audit firms that audited the accounts of companies being investigated by the SEC in this case the Aitken Spence group and its garments subsidiary. This has highlighted the need to appoint to regulatory bodies such as the SEC, people with either no shareholdings or, if that is not practical, for appointees to disclose their share portfolios and to refrain from any trading during the period of their service. Another financial markets, agency is considering a proposal of appointing independent directors to its board. Perhaps it is time for the SEC to do the same. Those involved in the financial markets reforms did in fact make such recommendations to prevent potential conflicts of interest at regulatory bodies, audit companies and rating agencies. One such suggestion was that anyone appointed to the Board of the SEC should give up their duties in other institutions that would constitute a conflict of interest. The market itself has reacted coolly to the crisis. But the strange and tortuous twists and turns the whole affair has taken only serves to highlight the prevalence of the old boy networks and the incestuous ties that bind many a corporate bigwig to each other behind the scenes in our business world.

SEC may force lawyers to spill clients' beans

NEW YORK: (Reuters) Despite a high-powered lobbying campaign by corporate lawyers, the Securities and Exchange Commission is moving towards approving a new regulation that some lawyers say would compel them to blow the whistle on clients, The Wall Street Journal reported recently.

A majority of five commissioners is currently leaning towards instituting some form of 'noisy withdrawal' requirement, according to people familiar with the matter.

That rule would require a lawyer who sees evidence of a client company committing a 'material' securities-law violation and is unable to get the company's board to stop it, to quit and inform the SEC that he is quitting for "professional considerations".

The proposal, which arose from last year's wave of corporate scandals, has elicited a chorus of criticism from law firms, bar associations and corporate lawyers, who contend that it would severely damage the attorney-client relationship.

"It paints a target on your client," says Lawrence J Fox, a Philadelphia securities litigator who has represented lawyers accused of wrongdoing.

"It's clearly a dramatic breach of confidentiality.

It would make the lawyer into a regulator."

Congress ordered the SEC to enact a new professional-conduct rule for lawyers in last year's Sarbanes-Oxley Act, which called for stricter rules to enforce corporate governance.

The most controversial of a long slate of regulations required by the bill is a directive to adopt rules "setting forth minimum standards of professional conduct for attorneys" practising before the SEC.

Those rules, Congress said, should require outside and company lawyers to report "evidence of a material violation" of securities laws by a company "up the ladder" to senior executives or the board.

DMS to offer Comex solutions

Solutions integrators, DMS Electronics (DMSE) last week announced its partnership with Comex Genesys to offer card-based payments solutions to the local banking and finance industry recently.

T.L. Chandranath, General Manager of DMSE said that this is a timely partnership as the plastic opportunity is expected to grow ten-fold over the next five years. He also noted that the improvement of the economy and the peace efforts will reflect a growth in tourism for which the infrastructure to acquire credit cards should also be in place, as there will certainly be growth in card transactions.

Comex Genesys is considered to be a leading Asian solutions provider for card payment solutions. It offers a series of solutions for card processing that cover consumer, debit, private label and virtual cards; and automating of cash payment and cash collection processes.

Company officials said the new product was tied to the government’s e-Lanka initiative, aimed at ensuring IT reaches all sectors of Sri Lankan society including the villagers.

Michael Yap, Chief Executive Officer of Comex Genesys said that there is immense potential for growth in credit cards in the Sri Lankan market based on the experiences of Singapore and Malaysia. He added that the partnership is also important for some of the Sri Lanka initiatives as the online merchants would need the infrastructure to receive payments and deliver goods.

The occasion of the partnership is also timely as Sampath Bank, which has been a customer of Comex solutions from its early versions over a 14 year period renewed its licence for an upgrade to the latest version of Comexs Credit Card processing solution. Ranjith Narangoda, Assistant General Manager, Card Centre and Systems Development at Sampath Bank said that the upgrade was required as the bank plans to expand its present 35,000 credit card customer base.

The two companies also organized a CEO Breakfast Meeting and Payments Forum to present strategies on Trends in Financial services and Technology. Two other leading business partners Hewlett Packard and Oracle also contributed to the forum. The local corporate leaders were presented with best practices for managing profitability of credit card and payments businesses.

Singapore based Comex Genesys also has offices in China, Japan, Malaysia, and Taiwan providing solutions for cards and payment processing. Its major shareholder includes Visa International.DMS Electronics Ltd is a well-established solutions integrator and has been providing the local banking and finance industry solutions in card based transaction processing technology for the last 20 years. (AA)

Trade deficit widens in November

The trade deficit widened in November despite an increase in exports, which was supported by improving performance of textiles and garments, and other industrial exports, the Central Bank said in a statement last week.

The following are excerpts of the statement:

Export earnings in dollar terms increased by 9% in November, 2002 in comparison to the performance in November, 2001. Expenditure on imports measured in dollar terms also increased by 9% in November, 2002. However, the absolute increase in export earnings was not sufficient to cover the increase in the import bill and hence the trade deficit widened to $156 million in November 2002 compared to the deficit of $144 million in November, 2001. Meanwhile, the foreign exchange market remained liquid, reflecting increasing inflows under the services and capital accounts, which were more than sufficient to cover the trade deficit. Consequently, the Central Bank was able to purchase foreign exchange from the market and further build up official external reserves.

The cumulative export earnings during the first eleven months of 2002 in comparison to those in the corresponding period in 2001 declined by 5%, recording a gradual reduction in the rate of decline observed in the earlier part of the year. As at June 2002, the cumulative decline in export earnings was at a peak of 17%, but this fell to 8% by the end of the third quarter, and finally to 5% as at November, 2002. Meanwhile, the cumulative imports declined by 1.5% during the first eleven months of 2002. The larger drop in exports than in imports has caused the trade deficit in the first eleven months of 2002 to increase by 12% to $ 1,274 million, compared with a deficit of $1,136 million recorded during the first eleven months in 2001.

Export earnings in November, 2002 were $378 million, compared with $346 million in November, 2001.

The cumulative export earnings during the first eleven months of 2002 were $4,204 million, compared with earnings amounting to $ 4,426 million recorded during the corresponding period in 2001.

Earnings from textiles and garment exports increased by 3% to $184 million in November, 2002. This was the combined effect of a 5% increase in the unit price and a 2% decline in the volume.

Other industrial exports together increased by 30% reflecting higher exports of machinery, mechanical and electrical products (54%) rubber based products (19%), diamonds (50%), petroleum products (22%) and plastic (6%). However, declines in export earnings were recorded in chemical products 0 (-14%) travel goods (-47%) and footwear (-9%).

Earnings from agricultural products decreased by 5% in November, 2002 due to the decrease in the export of tea. Despite higher prices, earnings from tea at $55 million recorded a decline of 10% in November 2002 due to the lower export volume.

Expenditure on imports at $534 million was an increase by 9% in November, 2002 compared to imports of $491 million in November, 2001.

The cumulative expenditure on imports during the first eleven months of 2002 was $5,478 million, a decline of 1.5 % over the first eleven months of 2001.

The import of consumer goods increased by 21% in November, 2002. Within this category, food imports recorded an increase of 18%. However, wheat imports decreased by 53% compared to imports of November, 2001. Imports of non-food consumer goods increased by 25% mainly reflecting increases in motor cars and cycles, radio receivers and TV sets, over November, 2001. Intermediate goods imports increased by 20% due to higher imports of fertilizer, petroleum, products, chemical elements and compounds, dyes and colouring materials, paper and paper products, and diamonds.

Expenditure on textiles imports remained at the previous year's level.

Investment goods imports, increased by 8% due to high imports of building material and transport equipment.

SLPA signs exclusive deals with Maersk, APL

The Sri Lanka Ports Authority has clinched terminal services agreements with the world's largest container carrier, Maersk Sealand, and American President Line (APL) under which they will exclusively patronise the Jaya Container Terminal for a period of two years.

All current and future services operated by Maersk Sealand and APL through the Port of Colombo will be handled at SLPA container terminals, the SLPA announced.
Under the Terminal Service Agreement with Maersk Sealand the carrier has committed an annual volume of 125,000 transshipment containers and 40,000 domestic containers.

The revenue that the SLPA would derive from a domestic container is about four times greater than handling a transshipment container, the SLPA said in a statement.

It quoted Jan Thorhauge, Managing Director of Maersk Sealand as saying: "We are very impressed with the dynamic, proactive leadership at SLPA/JCT and also we are pleased to see JCT sustaining the changes brought in over the last 12 months."

The SLPA statement quoted Maurice Mackeating, managing director of APL in Sri Lanka as saying, "Our decision to exclusively patronise Sri Lanka Ports Authority terminals was based on the productivity and efficiency gains achieved at JCT combined with the customer oriented outlook of the chairman and the management team."

APL, owned and operated by Neptune Orient Lines of Singapore, owns a fleet of 71 container ships with an annual shipboard capacity of 227,749 TEUs.

Maersk Sealand owns a container fleet of 312 vessels with an annual shipboard capacity of 773,931 TEUs (Twenty-foot equivalent units).

The Danish-owned carrier was a big customer of Colombo Port until the late 1990s when it switched most of its transshipment volumes to the new container port in Salalah, Oman, in which the line has an equity stake, partly owing to capacity constraints and inefficiency at Colombo.

The line, which handled 337,000 TEU at Colombo in 1998, handled only 74,500 TEU in 2000.

Stockmarket seen reviving on results

The Colombo stock market ended lower last week dragged down by a fall in Sri Lanka Telecom shares, the stock with the largest market capitalisation on the bourse, but brokers said they expect prices to recover when quarterly results start flowing in by next week.

Because of its size, a slight decline in the SLT price would have a big impact on the index.

SLT shares were heavily traded with retailers who bought in the IPO selling them owing to perceived uncertainty about the peace process following news of LTTE ceasefire violations.

SLT sank to almost Rs 13 on Friday, below its issue price of Rs 15, on retail investor selling.

The All Share Price Index, which opened on Monday at 838.7, declined and closed at 813.19. The sensitive Milanka Index followed the same trend, opening the week at 1395 and ending at 1388.74. The top gainers of the week were HNB, CIC and AMW.
The All Share Price Index could reach 900 points as the third quarter results of most companies are released, brokers said.

AMW was the pick of the week. The stock shot into the limelight on reports of buying by a strategic investor and has been subject to heavy trading between Rs 45 and Rs 60.

Brokers said AMW is set to grow in the future with its steady earnings and expansion to the north and east by capturing the re-conditioned vehicle market there.

With the interest rate cuts, major bank stocks such as HNB, Seylan and Sampath went up.

According to a DSA Securities spokesman, the banks made capital gains from Treasury bonds as a result of interest rate cuts.

HNB released its earnings figures for the third quarter and the stock rose by almost Rs 8 and finished at Rs 95.

Brokers said foreign investors who invested large sums in the CSE on a medium term basis as hope for peace rose in the country last year would hold on to the stocks since the market is seen picking up in February-March.

Last year the Colombo Stock Exchange became one of the best performing stock markets in the world, moving up by an impressive 31 percent when most of the other stock markets faired badly.

Net foreign investment for the year amounted to Rs 2.4 billion, the second highest net foreign inflow recorded in the history of the CSE. (DM)

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